Business in L.A. Called a Relative Bargain

Still complaining about the high cost of doing business in Los Angeles? Cheer up. You could be paying a lot more in business taxes in New York City, Washington or San Francisco.

A new survey has found that although Los Angeles still ranks as one of the most expensive cities in which to operate a business in the Southland, it’s still a relative bargain compared with a few other major metro areas, thanks in large part to California’s lower property taxes.

In fact, while California has long carried the reputation as a high-cost state, the latest Kosmont Cost of Doing Business Survey shows that, in terms of the taxes and fees imposed by local governments, two-thirds of the nation’s priciest business locales are outside California.

Topping the list is Washington, D.C., where the average business tax rate of 5.8% makes L.A.’s 0.3% average rate look downright cheap. The most affordable areas in which to operate a business in Southern California include Diamond Bar, Mission Viejo, Santa Clarita, Westlake Village, and the unincorporated areas of Kern, Orange, Riverside, San Bernardino, San Diego and Santa Barbara counties, which impose no business or utility user taxes.

“The truth is that California is a lot more competitive than people think,” said survey author and real estate consultant Larry Kosmont.

The annual Kosmont survey focuses on business, utility, property and payroll taxes; permit fees; and other costs imposed on businesses by local governments. Now in its sixth year, the study traditionally has focused on communities in Southern California, with Los Angeles perennially making Kosmont’s list of the most expensive cities.

However, this year’s survey includes data from nearly 30 of the nation’s largest cities. Although Los Angeles ranks fourth overall in average business tax rates, L.A. makes a respectable showing in industries such as manufacturing, wholesale and retail. Atlanta, Seattle, Miami and Portland, Ore., for example, all tax manufacturing companies at higher rates than Los Angeles does, according to the survey.

Los Angeles also has done surprisingly well in other business-cost studies. A recent index created by RFA/Dismal Sciences Inc., a Philadelphia-based economic research firm, ranked Los Angeles 29th in relative business costs--behind cities such as Boston, Detroit and Atlantic City, N.J.--after factoring in the costs of labor, energy, taxes and office space.

When it comes to taxes, Kosmont says California cities’ biggest advantage over rivals undoubtedly is in the realm of property taxes, where Proposition 13 has kept a lid on rates. In Chicago, for example, the nonresidential property tax rate is seven times the typical California rate, according to Kosmont.

“Prop. 13 has really leveled the playing field for California,” Kosmont said. “That has been a real equalizer.”

Kosmont rated 24 of the 213 communities surveyed as “high cost” based on taxes and fees levied on businesses. Eight of those cities were in California: Berkeley, Compton, Culver City, Inglewood, Los Angeles, Oakland, San Francisco and Santa Monica.

The Kosmont Cost of Doing Business Survey is available online at https://www.ecitydeals.com.

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Business Tax Burdens

Los Angeles is still one of the priciest places to do business in Southern California. But in terms of business taxes, its average rate is well below those of high-cost U.S. cities such as Washington and New York, and is on a par with much smaller metropolitan areas such as Seattle, Tacoma, Wash., and Miami.

Washington

5.8% average business tax rate

Source: Kosmont Cost of Doing Business Survey